Wednesday, March 31, 1999
Stocks Retreat
While Bonds Fall
On Economic Data
By AARON ELSTEIN
INTERACTIVE JOURNAL
Stocks fell sharply in late trading Wednesday, wiping out early morning gains in virtually all sectors. Bonds fell sharply on news that a regional purchasing managers' report showed unexpected strength, while the dollar weakened.
The Dow Jones Industrial Average closed down 127.10 points to 9786.16, with most of the drop coming in the last hour of trading. The Standard & Poor's 500-Index fell 14.38 to 1286.37 and the New York Stock Exchange Composite lost 5.06 to 603.59.
The Nasdaq Composite Index, which had jumped more than 30 points earlier in the day, closed down 18.88 at 2461.41.
"There was a lot of profit-taking at the end of the day," said Michael Lyons, a senior trader at Morgan Stanley Dean Witter. "There are holidays coming up for a lot of people and they want to get out of their positions. The Dow has had a great run, so those stocks are taking hits across the board."
Long-term Treasury bonds were down nearly a full point at worst, driving yields upward to 5.65%, after the Purchasing Management Association of Chicago issued a report showing far more strength in manufacturing in its region than had been expected. The group's index climbed to 57 in March from 52.9 in February. Economists predicted a reading of 52.8.
Although the report covers just one region of the U.S., it is closely watched because it often foreshadows the results of a nationwide survey of purchasing managers. That survey is due to be released Thursday. Any unexpected strength in manufacturing could renew fears that the economy would overheat. That could lead the Federal Reserve to raise interest rates to fend off inflation.
In other economic news, the Commerce Department said that corporate profits fell 2.2% in 1998, the first drop since 1989. The news was contained in a report that the economy grew at a 6% rate in the fourth quarter, down from an earlier 6.1% estimate. Separately, the government said that factory orders slipped 2.5% in February.
"The market should be uncomfortable with this," said Joseph Liro, vice president at Stone & McCarthy Research Associates. "If corporate profits are falling when the economy is growing like it is, that's not encouraging."
Financial stocks were hurt by the unfavorable interest-rate news, but technology stocks posted gains after analysts at Merrill Lynch & Co. and Morgan Stanley Dean Witter upgraded ratings on several companies in the sector. Internet stocks, such as America Online, up 2 1/2 to 147, were aided by investors acquiring the stocks in order to fine-tune their portfolios before the quarter ends, analysts said.
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